Russia’s Mechel says sanctions could hit its US coal business

Sanctions imposed by the US against Russia for its recent actions in Ukraine could hit the US coal business of Russian company Mechel, according to the company’s annual report.

The situation in Ukraine since the Russian annexation of Crimea has developed into the worst standoff between Russia and the West since the Cold War, prompting Washington and Brussels to impose sanctions on some Russian individuals and companies.

Western Governments have refrained from imposing sanctions on leading companies, however, they have threatened further measures that could target key sectors such as energy and banking if the crisis escalates.

With the UN warning today that there has been an “alarming deterioration” in human rights in eastern Ukraine, the crisis seems only to be worsening.

In response to the threat of sanctions, Mechel said the company could face sanctions that affect its Bluestone coal assets in the US and that it “cannot assure that such developments will not have a material adverse effect on our business, financial condition, results of operations and prospects.”

The sanctions that have already been imposed could also have the indirect of damaging the Russian economy, further accelerating capital flight from Russia and negative investor sentiment towards the country, making it harder for Russian companies to access international financial markets, Mechel said.

Mechel, which mines coal and produces steel, and which is controlled by businessman Igor Zyuzin, has been hit by weak prices for its products, forcing it to sell loss-making assets and to negotiate delayed debt repayment with creditors.

The company’s net loss in 2013 widened to a record US$ 2.9 billion after more than US£ 2 billion of write-offs.

Mechel has been looking to sell Bluestone since the first half of 2013 to lower its US$ 8.6 billion of net debt. It temporarily halted mining at the company in late April because of weak coal prices.